Managing seven key risks when trading overseas

Product risk is anything to do with the product you're importing or exporting. It covers demand for the product, your competitors, pricing sensitivity and even packaging of the product.

If you are exporting, assess what demand there is for your product in the overseas market you're targeting, and whether you need to modify your product to suit the new market's needs; you can't necessarily rely on replicating exactly what works at home.

Part of your due diligence should be to do some market research to identify what your target market wants and then compare your findings to your existing product. New Zealand Trade & Enterprise has some useful tips on market research.

If you need to change your product, determine whether that change is 'cosmetic' (which may mean changing the type of packaging you use for example) or 'profound' (which could mean changing the product itself).

You also need to be aware of any restrictions that may exist in your target market for the product you're selling. Check New Zealand Trade & Enterprise for different countries' regulations and standards.
 

Competitor activity

Keep an eye on what your competitors are doing in your target market. Go to trade shows and talk to customers. Visit your competitors' websites and keep up-to-date with who they're selling to, and any innovations they might be making. Be ready to alter your product or price to remain competitive. Check New Zealand Trade & Enterprise for more useful tips.

Pricing

It's important not to price yourself out of the market, so it's a good idea to do some research on what price customers might pay for your product. Factor in additional costs such as freight and insurance, tariffs and customs charges, regulations compliance, and exchange rate fluctuations.

Don't underestimate the cost of exporting, you need to make sure your business will be profitable once you've factored in all the associated costs. New Zealand Trade & Enterprise has some useful information on sales and pricing.

Design and packaging

Packaging, design and brand name are other potential risk areas. It pays to research your brand name before launching it in an overseas market, and check that the colours and imagery you use don't have any negative or inappropriate significance in the local culture.

Make sure that the packaging and labelling you use on your product complies with country-specific rules and regulations. Product packaging and labelling regulations in most countries are designed to protect the consumer by providing essential information on the product, so make sure you know what's required for the countries you're trading in.

Similarly, you'll have to supply product information on transportation labels and packing lists, which will vary from country to country. Check up on the requirements early otherwise your product might be delayed at customs. New Zealand Trade & Enterprise has more information.

You may also need to barcode or tag your product so that you or your customers can electronically track your goods in transit. This is becoming standard for exporters so you'll need to be up to speed on electronic identification tracking technology. You can find out more about bar-coding for business at GS1 New Zealand.

When you're packaging your goods for shipment make sure you pack them securely enough to survive repeated loading and unloading, as well as bad weather and rough roads or sea crossings. Proper packaging will also lessen the risk of theft in transit.

You can check out the New Zealand Trade and Enterprise website which has lots of information on preparing to export, including packaging and labelling your product.

Transportation

Getting product to and from the market place in prime condition and in a timely manner is crucial to your ongoing trading relationship. An ASB International Business expert can introduce you to a suitable freight forwarder to support your needs.

Marine insurance provides an important way to manage the risks of importing and exporting. Providing protection for both the supplier and purchaser, it helps safeguard against damage incurred in transit - whether by sea or air. An ASB international business expert can help you to identify a suitable marine insurance provider.

Operating under laws that differ from New Zealand law can pose some risk for you. Follow these steps in each overseas market:

• Take out product liability insurance and make sure you're covered for your target market. You can search online for product liability information in your target market.
  
• Find out how long it takes to grant trade marks and patents and have a plan in place to register these early.
• Reduce the risk of someone copying the design of your product by registering your design.
• Register your trade marks; include brands, slogans, logos, smells, colours and sounds.
• Patents protect concepts, inventions and ideas, and can give you patent monopoly to commercialise for up to 20 years. You'll need to file the patent in all markets, not just New Zealand. The Intellectual Property Office of New Zealand has more information about overseas protection.
• Copyright protects unregistered Intellectual Property, and applies automatically to original works like literature, drama, music, art, sound recordings, films, and radio or tv or internet broadcasts. There's no formal system for copyright protection, so check what the copyright duration is in each market.
• If you're using an agent or distributor make sure you cover all your IP risks in the agency or distribution agreement. New Zealand Trade & Enterprise has some useful information on working with agents and distributors.
• Export NZ and New Zealand Trade & Enterprise also have great information on why and how to protect intellectual property.

Product liability risk

This is harm to people or property caused by your product. You must be aware of potential product liability issues in your target market. Some countries are more litigious than others, so make sure you take appropriate measures to counter this risk.

Intellectual Property (IP) risk

Your intellectual property includes your product, your design and processes, your trade mark and patents, promotional material, user manuals, domain names and so on.

Your registered IP includes registered designs, trade marks and patents. Unregistered IP is intellectual property that hasn't been formally protected, such as copyright.

In some overseas markets, piracy and counterfeiting are a problem, so it's usually best to register your IP in the countries where you intend to trade. Be prepared, and take steps to protect your intellectual property.

Customs documentation risks

Make sure you're aware of import duties and tariffs, and any quotas that may exist. Most countries are very strict on import documents being accurate, and if your paperwork isn't complete or correct it may result in delays or even confiscation of goods. Check with the customs or border control agency to find out what documents you need to file and take the time to fill in all the paperwork properly.

You can check New Zealand Foreign Affairs & Trade for information on some overseas tariffs.

If you're exporting goods, particularly to a buyer you haven't worked with before, non-payment is a significant risk.

Trade credit insurance

Trade credit insurance helps mitigate credit and settlement risk, enabling an exporter to recover up to 90% of the sale or invoice value of goods if the buyer defaults or there is a contract dispute. This includes protracted defaults - where debt remains unpaid for some time and contract repudiation - where the buyer refuses to accept your goods without just cause.

An ASB international business expert can introduce you to specialists in trade credit insurance.

Documentary letters of credit

While trade credit insurance provides a direct way to mitigate risk, this can also be done indirectly through ASB using Documentary Letters of Credit and Without Recourse Finance.

Also known as an L/C, a Documentary Letter of Credit is a guarantee from your buyer's bank that payment will be made on presentation of compliant shipping documents at the agreed maturity date. There are different types of letters of credit for different situations.

Without Recourse Finance

To mitigate risk further, ASB can provide Without Recourse Finance which protects the exporter against the issuer of the L/C (i.e. the buyer's bank) failing to pay. Without Recourse Finance might be a good idea if you're unfamiliar with your buyers' bank or you are trading in a country where political risks are significant.

Whichever way you decide to protect your business against credit and settlement risk, an ASB international business expert can help.

Operational risk is any other kind of risk we haven’t already covered. It includes breakdowns in internal processes and procedures, human error and imperfect systems.

There are operational risks both in the actual production of your goods and in the paperwork and documentation you’ll have to produce.

You can manage operational risk in the actual production of your goods by:

• Making sure that your production processes (how you use your raw materials, machinery and manpower to create your product) are efficient. This will help reduce your costs and means you’ll be able to achieve economies of scale.
• Having an emergency and business continuity plan. It’s a health and safety requirement to have an emergency plan, and having a continuity plan will help reduce potential risk to your business after an emergency. The business.govt.nz website has some information on emergency and continuity planning.
  
• Have a long-term business strategy or business plan. You can check out the business.govt.nz and nzte.govt.nz websites for tips on creating a business plan.
  

There is also operational risk in the paperwork and documentation you’re required to submit, whether you’re importing or exporting. It’s very important that import and export documentation is accurate, otherwise there may be delays.

• Check what documents are required in your target market and take the time to fill in all the paperwork properly.
  
• Similarly, make sure you complete all the shipping documents that are required by the Ministry for Primary Industries and New Zealand Customs (see country and political risk above).
  
• You’ll reduce your operational risk if you’re thorough and accurate with all the paperwork.